Federal Student Loan Default Rate Rises to 10%

Of the 4.7 million federal student loan borrowers from nearly 6,000 postsecondary institutions who entered repayment between in FY 2011, more than 475,000 defaulted on their loans by October 2012. This rate, known as the two-year default rate, now averages 10%.

Sadly, the three-year default rate, which many believe to be a better estimate of actual defaults, is now at 14.7%. The rates are up from last year’s numbers of 9.1% and 13.4%, respectively. The three-year default rate, beginning next year, will take over as the main metric for measuring defaults on federal student loans.

Like last year, for-profit institutions have the highest default rates. Interestingly, the only year-over-year decrease in any default rate was the for-profit three-year default rate (22.7% to 21.8%). Every other default rate rose, except for the the two-year private, nonprofit default rate which held steady.

While sanctions based on three-year default rates will not begin until next year, there will still be sanctions for seven institutions of higher education. These sanctions are for schools who either have two-year default rates in excess of 40% for one year or have two-year default rates in excess of 25% for three consecutive years. Such schools face the loss of eligibility in federal student aid programs, pending an appeals process. In addition, the 221 schools with default rates in excess of 30% are required to submit a plan to the Department of Education regarding how to curb defaults for federal student loan borrowers at their particular institutions.

If you’re interested in finding out about a specific school’s default rate, you may do so by clicking the following links: